China’s first gold futures contract, launched on Shanghai Futures Exchange (SHFE) on January 9, saw trading volumes soar on day one as commodity trading in the country gathers momentum. News of a number of other potential product launches also emerged from China as the country’s three commodity exchanges seek to ramp up their offerings.
SHFE’s gold future traded an impressive 121,468 contracts on its first day, according to exchange figures. In comparison, on the same day 147,849 gold futures traded at the long established New York Mercantile Exchange (Nymex) while that platform’s all-time record trading day in the metal was 257,914, set on July 26 last year.
The early success of SHFE’s product was noted across the region, with one Singapore-based commodities trader commenting, “I would not want to call that kind of day -one activity unprecedented but I can’t think of many more impressive starts – it certainly shows what all the fuss is about over China.”
One market source also hailed the first day trading volumes but he did stress that it can be difficult to directly compare to other globally listed contracts as the contracts is about one-tenth the tick size of a Nymex contract.
The Chinese contract is less than one third the size of Nymex’s, however, representing 1kg of gold as opposed to 100 troy ounces (3.11kg).
“If you regard the trading volume as one tenth the tick size of a Standard CBoT, or Comex 100 Troy ounce, $US denominated contract; then adjusted volume is still 12,000 contracts traded,” said the market source. “There hasn’t been a launch in ten years where on the first day, the contract trades 12,000 lots. Even the Euro Stoxx, which is one of the most actively traded index traded future in the world, when launched only traded 1,500 lots per day,” said the Asian-based market insider.
While the smaller contract offered at the Chinese exchange may make direct comparisons difficult, it may in fact have led to the soaring first day volumes.
“Shanghai had talked about making the contract 300 gram which would have attracted smaller players but I think they were worried about over-speculation. The contract is physically delivered and the kilo size is the most popular contract in the world as far as depositories goes,” said Bill Purpura, previously senior VP at Nymex and now consultant for the firm. “The exchange is also not allowing individual investors to participate in deliveries. “Making the contracts three times as big and putting that restriction in have been two wise moves. I think it is going to be widely successful,” he added.
While commodity futures volumes in China have soared in recent months (see FO Week Vol 13 No 1), the process of listing new contracts in the country has traditionally been a slow one. Just four new products were listed in 2007 and China still has no financial futures despite its first exchange for such products now having been open, but dormant, for over a year.
This could change in the coming months, though: equity index futures are understood to be imminent, and China’s official news agency also last week announced the approval of industry standards for live hog futures to be listed on Dalian Commodity Exchange – the country’s biggest.
No target date has been placed on the launch, however, and analysts say China is still at a relatively early stage in discussions over the introduction of crude, fuel and diesel oil futures. Nonetheless, the breakthrough and early success of gold is taken by many observers as a positive sign.